People used to laugh at I-Bonds

People used to laugh at me when I mentioned I-Bonds. They’re not laughing now.

Treasury Sold $500 Million in I Bonds Friday Morning, on Final Day to Lock in 9.62% Rate

The interest rate on inflation-adjusted I Bonds is expected to drop to around 6.47% starting Nov. 1

By Veronica Dagher, The Wall Street Journal, Updated Oct. 28, 2022

As of 12 p.m. ET, about 52,000 accounts had been created and more than $500 million in I Bond purchased on Friday alone, Treasury said. Thursday, about 82,000 accounts were created totaling roughly $750 million in I Bond sales…

Safe, staid inflation-adjusted Series I savings bonds don’t capture much of the investing spotlight in most years. They became breakout stars of 2022 as inflation reached a four-decade high, markets plunged, and investors searched for a safe place to park their money…

If a customer receives a confirmation that their purchase has been made or completed by Oct. 28 11:59:59 p.m. ET, then the payment will be processed, a spokesman said. [end quote]

Wendy

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Early morning log-in attempt:

We’re sorry!

TreasuryDirect services are unavailable at this time due to scheduled system maintenance.

We apologize for any inconvenience this may cause. We appreciate your patience and invite you to return later. In the meantime, you may want to visit the TreasuryDirect website for other news and information.

(Hangover from too much of a good thing? :slight_smile: )

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After a number of attempts, I was not able to get into the TreasuryDirect site yesterday at all. So I was not able to do the gift thing - I should have jumped on it earlier I guess. Who would have thought there would be a run on I-Bonds?

This site is still down this morning.

Would anyone happen to know how to find out what the next rate offering will be?

Thanks in advance.
'38Packard

'38Packard finds an answer to his question… From the TreasuryDirect website this morning…

Thank you for visiting the TreasuryDirect website.

TreasuryDirect will go into scheduled maintenance from approximately 12:00AM ET Saturday, October 29 through 11:59PM ET Sunday, October 30 to ensure continued operational integrity and resiliency of the system. This maintenance period will also ensure we are able to successfully process the unprecedented volume of I bond purchases made in the past 24 hours. During this time the account management system will be unavailable.

Customers who complete an I Bond purchase before scheduled maintenance begins at 12:00AM ET Saturday, October 29 will receive 9.62% for six months. Learn more.

As usual, TreasuryDirect will reopen for account creation and purchases on Monday, October 31. Beginning Monday, purchases will receive the rate that will be published on Tuesday, November 1. This new rate will be applied for six months after purchase.

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I remember those discussions. But to be fair, the only people that “laughed” were those that believe that locking in a guaranteed 0% real return over 30 years (or at least 5 years) was laughable.

I believe that the 0% real return is still the case. Now back in 2000/2001, I-bonds were truly a “no brainer”, at a guaranteed 3.0-3.4% real return.

I, however, use I-bonds differently. To me, they are simply a portion of my fixed income portfolio. Basically money I need to live on during the subsequent 5-10 years, that I can use as necessary to avoid selling equity investments that may be temporarily down, but that provide a much higher real return over time. So if alternative fixed income investments yield -1% or -3%, a yield of 0% beats them by quite a bit. Today, though, TIPS may beat I-bonds, though with a small bit of additional risk - if you need to sell TIPS early, you may receive less than par. But this risk is easily managed via laddering (for example, buy 5-year TIPS every few months, and in 5-years allow them to mature, or mix in a few 10-year TIPS if you like to maintain the higher rates for an additional 5 years).

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@MarkR, I agree with everything you wrote. I do have I-Bonds from 2001 yielding 3% over the rate of inflation. The I-Bonds I am buying now are basically a cash substitute that holds its value against inflation.

I am buying TIPS now and plan to buy more in December and January. But I’m also looking at secondary-market mortgage bonds which are currently yielding 6%. To buy a 10-year TIPS yielding 2% vs. a mortgage bond yielding 6%, one would have to believe (contrary to the market) that inflation will be 4% or above for 10 years.

What do you think?
Wendy

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For those that might be wondering what the current rate is today and the next 6 months.
'38Packard

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Funny, I’'ve also been thinking about looking into mortgage bonds recently. I fondly remember buying CMOs in the 80s at 8 or 8.5%. They were good while they lasted.

I’m not so sure about this. Those 6% mortgage bonds will not last for 10 years. They will be paid off, and you will get your money back long before 10 years have passed. In fact, if the fed reverses in the face of recession, let’s say in 18 to 24 months, and starts dropping rates, those mortgages will very quickly be refinanced and you will get your money back.

There’s a fine line in determining which fixed income instrument to use at any given time. It is quite possible that a 5-year CD at 4.25% will have a better total yield (~21%) than a 6% mortgage bond over the total 5 year period. If the 6% lasts for 2 years, and then you have to reinvest at 2% for the next 3 years (~18%), then the CD will win. And it’s also possible that 5y TIPS will beat both of them - imagine inflation of 6% ('23), 4% ('24), 2% ('25-'27), then the TIPS win (~23.5%).

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